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Sequoia Capital has slashed the scale of two of its funds, together with a cryptocurrency automobile raised final 12 months, because the Silicon Valley-based enterprise capital agency retrenches in response to a pointy reversal in non-public markets.
The agency minimize the scale of its crypto fund from $585mn to $200mn and halved its ecosystem fund — which backs smaller enterprise funds or solo buyers — from $900mn to $450mn.
The discount within the measurement of the funds, which was communicated to the agency’s restricted companions in March this 12 months, comes amid a broad downturn for personal expertise firms and a liquidity crunch for some restricted companions — the buyers who present capital to enterprise capitalists to speculate on their behalf.
“We made these modifications to sharpen our give attention to seed-stage alternatives and to offer liquidity to our restricted companions,” Sequoia mentioned, including that the agency has returned greater than $15bn to its buyers over the previous three years.
The discount of the fund sizes was first reported by the Wall Road Journal.
Sequoia has undergone a succession of main modifications this 12 months. In June, it introduced it might split off its extremely profitable Chinese language entity amid rising tensions between the US and China, and earlier this month it introduced companion Michael Moritz would step down after 38 years at Sequoia.
Moritz “helped set up Sequoia as one of many main expertise funding teams on this planet”, Roelof Botha, Sequoia’s managing companion, mentioned on the time.
The agency is repositioning itself at a precarious second for enterprise capitalists, as non-public markets reset after greater than a decade of progress throughout which funds ballooned in scope and scale.
Sequoia’s ecosystem and crypto funding funds had been introduced in early 2022, when the enterprise market was using excessive. Since then, rising rates of interest and falling financial confidence have hammered start-up valuations, diminished public listings to a trickle and stalled enterprise funding.
“Enterprise buyers are just a bit extra cautious normally,” mentioned Conor Moore, a companion in KPMG’s enterprise capital follow. “There’s nonetheless cash there to be invested however the tempo has slowed down as a result of exits have all however stopped.”
Cryptocurrency funding has been notably onerous hit, with various the sector’s most outstanding firms embroiled in regulatory or authorized disputes. Funding into cryptocurrencies and initiatives fell 80 per cent between the primary quarter of 2022 and the primary quarter of 2023, in accordance with PitchBook.
Sequoia’s most high-profile wager within the sector was FTX, Sam Bankman-Fried’s cryptocurrency change, in July 2021. The corporate collapsed final 12 months, and Bankman-Fried has been charged with a number of counts of fraud. Sequoia has written down its $214mn investment within the firm to zero.
The collapse of FTX has forged a pall over the sector, and Sequoia will now deploy its downsized fund into early-stage firms. The corporate mentioned it’d nonetheless make investments into crypto by way of its different funds.